Getting the number wrong bodes ill for reform

Throughout the health care debate, many of the discussions about the cost of reform programs have hinged on projects from the Congressional Budget Office, Congress’ nonpartisan number cruncher.

But as Bloomberg News reports, the CBO has a pretty lousy forecasting record on sweeping policy changes.It overestimated the cost of the 2003 Medicare prescription drug benefit by $136 billion, and it underestimated last year’s $250 billion bailout of Fannie Mae and Freddie Mac by a factor of 10. It missed the mark on the number of people who would be helped by last year’s mortgage refinancing plan, and so on.

It’s not that the CBO is a bunch of dunderheads. The problem is the broader the proposed policy, the more difficult it becomes to assess the true costs. As Bloomberg explains:

CBO’s projections matter because lawmakers are required to use them as they weigh various measures, including the plans to remake the U.S. health-care system. Yet the more sweeping the proposal, the more likely its estimates will miss the mark because on such legislation the agency has the least amount of data, CBO Director Doug Elmendorf said.

“When Congress is considering incremental changes to policies, and especially incremental changes that are similar to ones that have been made before, then there’s a history that we and other analysts can consult,” Elmendorf, 47, said in an interview. With “more dramatic or novel changes in policy, there’s no previous experience to refer to.”

None of which bodes particularly well for those costs estimates of health care reform, according to Elmendorf.

As the nonpartisan agency reviews plans to carry out the most extensive overhaul of the medical-care system in more than four decades, “the range of uncertainty around our estimates of health-reform proposals is very large,” he said.

It’s something to keep in mind as both sides in the political debate start throwing around cost projections, most of which will be based on the CBO’s analysis.